When Do Employees Lose Their Entitlement to Wages?

In Short

• Employees are entitled to wages for work performed, but entitlement ceases during certain absences like unauthorised leave.
• Misconduct or breach of contract by an employee can result in losing wage entitlements.
• Employers must follow proper procedures and legal requirements before withholding wages.

Tips for Businesses

Ensure you have clear policies outlining circumstances where wage entitlements may be affected, such as misconduct or unauthorised leave. Document any incidents meticulously and communicate with employees about their rights and obligations. Always follow legal processes when considering withholding wages to avoid potential disputes or legal issues.

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Table of Contents

• Non-Fulfilment of Duties
• Defective or Partial Performance of Duties
• Failure to Provide Notice 
• Wage Theft
• Key Takeaways
• Frequently Asked Questions

Employers work with the understanding that they will be compensated for their efforts. However, if employees do not complete the work outlined in their contract, they may lose their entitlement to wages. An employee’s entitlement to wages usually arises out of their employment contract. Thus, the first step for any employer will be to examine the contract itself. However, the entitlement to wages, as found under the employment contract, may be modified by legal principles. Accordingly, before you loosen the purse string, it may be prudent to consult with a legal professional to ascertain whether you are obliged to pay. This article will take you through some key instances when employees lose their entitlements to their wages.

Non-Fulfilment of Duties

Regardless of whether an employment contract exists, an employee does not have an entitlement to wages where they have not fulfilled their obligations. The type of services the employee was required to render will depend entirely upon the employment contract terms or verbal arrangement between the parties.

Similarly, if an employee does not show up for work, you may not have to pay them. However, denying payment should be done in line with the employee’s leave entitlements. There may be several reasons why an employee cannot work, but that does not always mean you do not have to pay them. To understand how much time off the employee is entitled to, you should consult the relevant:

• modern award;
• enterprise agreement; or
• industrial award.

Defective or Partial Performance of Duties

More often than not, it cannot be said that an employee failed to discharge their work obligations in their entirety. The more likely scenario involves the employee discharging:

• some of their responsibilities, which is called part-performance; or
• all of their responsibilities in a sub-par manner.

In this case, the employee has likely lost their entitlement to wages. An employee must perform all the duties they contract for under the employment contract or otherwise agreed to. You can refuse to accept part-performance of work, provided the part performance is substantial and not merely marginal. This will need to be determined on a case-by-case basis.

Regarding defective performance, you are entitled to reject the employee’s work; in such a situation, there is no obligation to pay. Additionally, if you have hired an independent contractor, you may be entitled to reject the contractor’s work. In this case, there will be no obligation to pay, subject to the terms of any agreement.

Additionally, you have the option of electing to accept defective or partial performance. If you do, a duty to pay arises, and you cannot then go back and claim that the work provided was not what was contracted for. In such circumstances, the entitlement to wages is the right to full wages, as stipulated under the contract or per the parties’ agreement.

Failure to Provide Notice 

When an employment relationship ends, you are required to provide payment to the employee of their:

• wages worked; 
• unused accrued leave entitlements; and 
• in some instances, payment in lieu of notice. 

However, if an employee ends their employment without providing you with the required notice period, they may lose entitlement to some of their termination payment. 

Some modern awards provide that you can deduct up to one week’s wages from an employee’s final pay without their agreement if the:

• employee is at least 18 years old; 
• employee has not given the minimum amount of notice of termination under their award; and 
• deduction is not unreasonable in the circumstances.

However, in these circumstances, you can only deduct from wages owed under the award. You cannot deduct from other entitlements owed to the employee, such as accrued but unused leave. You also cannot deduct money if you agree with the employee to a notice period shorter than the notice required under the award.

Wage Theft

When determining whether you need to pay your workers, you must be cautious not to commit wage theft. Wage theft occurs when you underpay or withhold your workers’ entitlements, thus stealing from them. Workers are entitled to receive at least the minimum pay and conditions per the application award, enterprise agreement or employment contract.

If you are unhappy with your employee’s work or attendance, you must notify them of their underperformance and provide them with a warning. If the employee continues to underperform or not show up for work, you may choose to terminate their employment. This is a better alternative than underpaying or not paying your workers and later being held liable for wage theft.

Similarly, if you are unhappy with the work of your contractors, you may notify them of your dissatisfaction and inform them that failure to perform or underperformance constitutes a breach of contract, for which you will have civil remedies available.

Key Takeaways

Although you may be tempted to withhold pay from your workers when they underperform or fail to perform, it is important that you are aware of their entitlement to pay under the applicable employment contracts, award or enterprise agreement. Where you wish to withhold pay, you may wish to first consider:

• issuing a warning; 
• termination of employment; or
• pursuing remedies for breach of contract.

If you need assistance understanding your entitlements as an employer, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions